Consumer spending rebounds in October

updated 9:35 a.m. ET Nov. 30, 2006

WASHINGTON - Shoppers picked up their pace in October after two lackluster months, but the nations’ retailers reported mixed results in November, raising concerns about the all-important holiday shopping season.

The Commerce Department said Thursday that consumer spending increased by 0.2 percent in October, the best showing in three months. Spending had fallen by 0.2 percent in September and posted only a slight 0.1 percent rise in August.

However, the nation’s retailers reported a mixed sales performance for last month. Wal-Mart Stores Inc., the nation’s largest retailer, said its same-store sales were down 0.1 percent and predicted that sales would rise in December by no more than a modest 1 percent.

The October spending increase was bolstered by continued solid growth in incomes, which rose by 0.4 percent in October, reflecting solid employment growth that pushed the jobless rate to a five-year low.

In other economic news, the number of Americans filing new claims for unemployment benefits posted an unexpectedly large increase last week, rising by 34,000 to 357,000, the Labor Department reported.

That jump pushed jobless claims to the highest level since October 2005 when the devastating effects of Hurricane Katrina caused layoffs to soar. Ian Shepherdson, chief economist at High Frequency Economics, said it was too soon to say whether the unexpected increase in layoffs indicated a serious weakening in the labor market or was simply an aberration.

The four-week moving average for claims, which is designed to smooth out week-to-week fluctuations, rose by 7,250 to 325,000, the highest level since June 3.

The Federal Reserve is hoping that its two-year campaign to raise interest rates will cool consumer spending and the overall economy enough to keep inflation under control but not do so much damage that it pushes the country into a recession.

On the inflation front, a price gauge linked to consumer spending and closely watched by the Fed posted a 0.2 percent rise in October. That was the same as September, but down from a 0.3 percent jump in August. This price barometer, which excludes food and energy, is up 2.4 percent over the past year, still higher than the Fed’s comfort zone.

The 0.2 percent rise in spending was the best showing since a 0.8 percent jump in July, a month when Americans flocked to auto showrooms to take advantage of attractive sales incentives.

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